After the close last night, cloud software developer Nutanix (NTNX) issued upside Q3 results while also providing Q4 revenue guidance that was ahead of the Capital IQ consensus. Specifically, it reported a loss per share of ($0.42), beating the ($0.45) consensus, with revenue rising 67% to $191.8 million, also exceeding the $185.6 million consensus. The solid report has shares popping by about 17% in pre-market trading. And, undoubtedly, NTNX was in need of some good news. Since closing at $37.50 the day after its IPO day (9/30/16), shares have cratered by about 55%.
For some quick background on the company, NTNX is a developer of computer storage technology which makes it easier and more cost-effective for companies to run servers. The technology it uses is called "hyperconverged", a cloud platform that converges traditional silos of servers, virtualization, and storage into one integrated system. NTNX's platform is comprised of two software product families: Acropolis and Prism. Here is a closer look at each:
- Acropolis: This software delivers distributed storage, application mobility capability, and a built-in "hypervisor", which is software that allows multiple operating systems to share a single hardware host.
- Prism: Prism provides integrated virtualization and infrastructure management, operational analytics, and administrative capabilities.
NTNX believes that its platform is much more agile that competitors since it converges silos, virtualization, and storage infrastructure into one system. To put that benefit into some context, an IDC study indicated that customers can deploy its technology in up to 85% less time than traditional infrastructure. Additionally, with NTNX's application, infrastructure can be provisioned in minutes with one click by a single IT administrator.
NTNX actually does has a track record of exceeding analysts' top and bottom line estimates. In fact, it has beaten the EPS and revenue consensus each of the three times it has issued quarterly results.
However, what has been the issue has been its guidance. In its Q2 report on March 2, NTNX issued EPS guidance that was well below expectations -- ($0.48)-($0.45) vs. the ($0.35) consensus. This instigated a 26% plunge in the stock the next day and shares continued to sink for several weeks thereafter. The stock finally bottomed at the beginning of May.
With the stock so battered and with a low bar to hurdle, the stage was set for a significant pop if NTNX delivered an upside report. As noted above, the company beat on both the top and bottom lines. One of the main catalysts for the upside report was that it added 790 new customers during the quarter. Furthermore, it had success winning larger deals. It ended the quarter with 34 customers at over $1.0 million in business during the quarter.
There are some blemishes to the report, though. For instance, gross margin declined materially to 56.6% from 62.2%. And, the company burned quite a lot more cash during the quarter than the year ago period. Free cash flow came in at ($29.2) million vs. ($11.0) million in 3Q16.
For now, though, the focus is on the better-than-expected headline numbers and the upside Q4 revenue guidance of $215-$220 million. Another key point is that with the dive in the stock price, the valuation has become considerably more attractive. At the moment, NTNX is trading with a 1-year forward P/S of about 2.5x.